Social Democracy, the “Third Way,” and the Crisis of Europe, Part 3

By Alejandro Reuss, historian, economist, and co-editor of Triple Crisis blog and Dollars & Sense magazine. This is the final part of a three-part series on the historical trajectory of European social democracy towards the so-called “Third Way”—a turn away from class-struggle politics and a compromise with neoliberal capitalism—and its role in the shaping of the Economic and Monetary Union of the EU. (See Part 1 and Part 2.) It is a continuation of his earlier series “The Eurozone Crisis: Monetary Union and Fiscal Disunion” (Part 1 and Part 2). His related article “An Historical Perspective on Brexit: Capitalist Internationalism, Reactionary Nationalism, and Socialist Internationalism” is available here. Originally published at Triple Crisis

Social Democratic Revivalism?

A deep crisis of global capitalism, its seeds sown in part by a dramatic deregulation of finance, Wolfgang Münchau of the Financial Times notes, would seem tailor-made for a revival of the “centre-left.” Why has this not happened? “The deep reason,” Münchau argues, “lies in its absorption of the policies of the centre-right, going back almost three decades: the acceptance of free trade agreements, the deregulation of everything, and (in the eurozone) of binding fiscal rules and the most extreme version of central bank independence on earth. They are all but indistinguishable from their opponents.” For the most part, however, this has led neither to a general collapse of these parties, nor to a rejection of “Third Way” politics and sharp turn back toward a full-throated social democratic reformism.

The main exceptions, among relatively large countries, are Greece and Spain—the two countries hit hardest by the crisis, and the two which saw the most explosive mass protest movements against austerity. On the electoral front, voters punished the mainstream social democratic parties—the Panhellenic Socialist Movement (PASOK) in Greece and the Socialist Workers’ Party (PSOE) in Spain—for their administration of austerity policies. These parties’ former supporters have gravitated to new political entities promising to resist austerity measures.

In Greece, the SYRIZA coalition rose from less than 5% of the vote in national parliamentary elections in 2009 to more than 36% in January 2015. PASOK, which had not polled less than 38% of the vote since 1977, saw its vote drop from 44% to less than 5%. The story, alas, does not end with a decisive turn against austerity policies. After striking a tough stance against austerity and engaging in protracted and tense negotiations with the “Troika” (European Central Bank, European Commission, and International Monetary Fund), SYRIZA capitulated to a new round of painful austerity (imposed by its creditors as a condition of the “third bailout”). Despite the split of its left wing as the new Laïkí Enótita (Popular Unity) party, SYRIZA basically maintained its electoral strength in the next elections in 2015.

In Spain, the new left party Podemos (“We Can”) debuted with just over 20% of the vote in its first national election (December 2015). Meanwhile, the PSOE dropped from 29% of the vote in 2011 to 22% in 2015. The largest party of the right, the Partido Popular (PP), which has alternated in power with the PSOE since the early 1980s, dropped even harder—from about 45% to 29%. Podemos’ dramatic rise to national relevance inspired hopes of further gains, and even a Podemos-led government, after the June 2016 elections. That did not come to pass. Podemos’ electoral support hardly budged (to just over 21%), leaving it the third-place vote-getter, just behind the PSOE, while the PP remained the top party, regaining some lost ground to about 33% of the vote.

The emergence of SYRIZA (at least until its capitulation on the “third bailout”) and Podemos inspired hope not just for a turn away from austerity policies, but also the renewal of a robust social democratic reformism in the style of the post-World War II period. Meanwhile, in the U.K., a turn away from Third Way politics took the form of a successful leadership challenge within the leading social democratic party: The September 2015 victory of MP Jeremy Corbyn as Labour Party leader signaled a clear rejection of the “New Labour” politics associated with the party’s last two prime ministers, Tony Blair and Gordon Brown, and with Corbyn’s rivals for the leadership, who had both served as cabinet ministers under Blair or Brown. Lest the meaning of the victory be unclear, reported The Telegraph, “Mr Corbyn’s jubilant backers chanted: ‘Old Labour, not New Labour.’” (Corbyn more recently beat back a counter-attack from the Blairites, winning a leadership challenge by an even larger margin.) There are, in addition, a few other emergent left alternatives to the main social democratic parties—such as Die Linke in Germany and the Left Bloc in Portugal. Green parties, another potential source of left opposition to Third Way social democracy, have only gained electoral traction in a few countries, most notably in Germany (where the Greens were twice in governing coalitions with the Social Democrats). In general, however, we have yet to see powerful coalitions between the class-struggle left and the greens.

Class Struggle and Revolutionary Politics

There are also lessons here for the revolutionary left—that is, those whose aim is not some form of reformed capitalism, but the replacement of capitalism by an egalitarian, democratic, and cooperative alternative. The case for this perspective relies on two ideas. First, that it is necessary to abolish capitalism to solve the searing problems of the present day. Second, that it is possible to build a future society, embodying the virtues described above, and that this would be preferable to capitalism.

Revolutionary socialist politics have a long history in Europe, and there is no shortage of self-described revolutionary organizations, of diverse ideological traditions, in Europe today. However, for the most part, revolutionary socialism has been quite marginal to the politics of most European countries for decades. (Even in countries with influential Communist parties, like France and Italy, these parties had long since settled into reformist politics.) The relative stability of European capitalism in the latter half of the 20th century and the strength of a reformist social democracy (in some cases paying ceremonial tribute to the dream of a “socialist” society far off on the horizon) blunted the appeal of social revolution. The present period shows, however, that changed underlying conditions—the erosion of social democratic reforms, the eruption of a serious crisis of capitalism, the vacuum created on the left by the rightward drift of the social democratic parties themselves, and even the emergence of mass opposition movements in some countries—do not automatically lead to growing influence for anti-capitalist forces on the left.

The reconstruction of a meaningful anti-capitalist politics in Europe faces two enormous challenges:

First is the reconstruction of the working class’s capacity for struggle.

It is not only in the United States that the power of the workers’ movement has eroded in recent years. The decline in union membership as a percentage of employed workers (or “union density”) serves as a quick, rough indicator. High-income countries are divided into basically two groups, those where union density has declined significantly and those that are treading water. Between 1999 and 2012-2014 (using the most recent year for which data are available), out of 21 high-income OECD countries, not one had experienced a substantial increase, six were treading water (with a change of less than 10%, e.g., for a country with a union density of 25% in 1999, a changes of less than 2.5 percentage points in either direction), while fifteen had experienced substantial decline.

Strike rates, too, are down across the capitalist world. In principle, a decline in the most visible form of conflict between capital and labor could have any of several explanations: a trend toward more amicable relations between capital and labor, a substitution of alternative means of struggle by workers and unions, or a preponderance of power on one side or the other (so that the weaker side does not dare engage in a frontal confrontation). It’s quite obvious, in the current period, which of these is the case.

The weakness of working-class movements is also evidenced in income trends. Real wages in high-income capitalist countries have stagnated in recent decades. As productivity has increased, and employers have captured most of the income gains, workers have seen their shares of national income erode. Economist Jayati Ghosh, summarizing the findings of a recent McKinsey Global Institute report, describes the trends as follows: “From 1970 to 2014—with the brief exception of a spike during the 1973–74 oil crisis—the average wage share across the six countries studied in depth (United States, United Kingdom, France, Italy, the Netherlands and Sweden) fell by 5 percentage points. In the most extreme case of the United Kingdom, it declined by 13 percentage points.”

This is not to say that inexorable forces doom workers everywhere to their current fate. Differing institutional conditions in different countries can make significant differences. Workers have suffered a catastrophic decline in union membership in some countries but not others, with the political conditions for union recognition, collective bargaining, and the right to strike explaining much of the difference. In terms of income shares, Ghosh argues, “state policies and institutional relations in the labour market matter” as well.

It is not a truism, however, that changes in government policy (like more favorable legal conditions for union organization or greater protection for the right to strike) must precede a major turn of the tide. A worsening legal and political environment, to be sure, is a major factor in labor-movement decline in many countries. However, we should recall that major upsurges in labor organization, strike waves, and so on have often happened under conditions that, in important ways, were less favorable to the labor movement than those of today. (Think, for example, of the great upsurge of the 1930s in the United States.) Nor is it obviously the case that a reconstruction of social democracy’s postwar heyday—with large and stable unions, a more favorable division of the national income, an expanded welfare state, or a reinvigoration of the reformist social democratic parties themselves—must precede the revival of a more radical anti-capitalist politics.

From the vantage point of a revolutionary anti-capitalist project, what is necessary is to reverse the defensive and demobilized position—and the death by a thousand cuts—that is the current reality for the working class in so many countries. This means a revival of the capacity for mass action, such as large-scale strikes, which leading revolutionary Marxists of a century ago, like Rosa Luxemburg, saw as cauldrons of class consciousness. It requires a broad politics of solidarity, in which struggles are not confined to the narrow interests of this or that particular group (whether defined by occupation or industry, broad social layer such as “white collar” vs. “blue collar” vs. “the poor,” or by fault lines such as native vs. immigrant). What it does not require—indeed, what must not be tolerated—is for such unity to be forged at the expense of silencing the grievances of historically subordinate groups (such as racial/ethnic minorities, women, or immigrants). It must not assume that the leadership will come from some traditional “core” of the working class, who will deign to reach out and include other groups. Indeed, the leadership for a new radical movement may come precisely from groups that were excluded or marginalized by the labor and social democratic movements of the past. Moreover, the forms of mass action need not be exclusively workplace-based. Large protest marches against austerity, in Greece, Spain, and other countries, were certainly an encouraging sign (though they have ebbed since).

Second is the reconstruction of a nexus between class struggle and socialist politics.

To accomplish that, it is not sufficient for socialists to proclaim the superiority of an egalitarian, democratic, and cooperative socialism of the future to the unequal, hierarchical, and predatory reality of capitalism today. An appealing vision of a new socialist society is certainly necessary, however partial and speculative it must be (a detailed and specific blueprint would verge on utopian fantasizing). But it is not sufficient, since a vision of that kind—of the world we are fighting for—has to be quite stable. It cannot change, as political slogans and demands must, to match the pulse of present-day struggles. (At worst, a steadfast emphasis on the necessity of revolution or the superiority of life “after the revolution” can devolve into static sloganeering disconnected from such struggles.)

Nor is it sufficient for revolutionaries to be exemplary builders of labor unions or working-class parties, or exemplary fighters for immediately realizable reforms. Serious engagement in actual movements is necessary, if revolutionaries are to achieve meaningful influence with the much broader groups that are organizing and fighting (however partial the objectives of those movements may be). Again, however, it is not sufficient. Building protest and reform movements can lead to real gains within the confines of capitalist society—rather than advancement toward the abolition of capitalism. (At worst, “revolutionaries” who confine themselves to the role of building reform movements are really not revolutionaries at all, but exemplary reformists.)

Déjà Vu All Over Again?

The two roads outlined above are not hypotheticals. They are descriptions of a division that afflicted European social democracy in the late 19th and early 20th centuries—between the so-called “minimum program” (the fight for reforms realizable under capitalism, which by the 1910s was unmistakably the real daily work of the main social democratic parties) and the “maximum program” (the objective of socialism, which by then was largely confined in these parties, as Trotsky later put it, to “holiday speechifying”).

Trotsky outlined, in the 1938 Transitional Program for Socialist Revolution, an alternative approach to overcome this split between practice of reform and preaching of revolution—to “help the masses in the process of the daily struggle to find the bridge between present demand and the socialist program of the revolution.” The idea was to raise, at each turn, demands that both offered plausible answers to current problems under capitalism and thrust at the foundations of the capitalist system.

One example, from the Transitional Program itself, is for the workers’ movement—confronted by capitalists’ claims that cost increases force them to raise prices—to demand that the employer “open the books” and show whether it is costs, or rather monopoly profits, that explain high prices. Thus, a struggle over prices and, indirectly, the distribution of income within capitalist society, is turned into a struggle over “business secrets,” that is, one aspect of capitalist property rights. Other planks included the expropriation of the big banks, shortened work hours without reduction in total pay, and the expropriation of shuttered factories and their reopening under workers self-management. Far from being pie-in-the-sky fantasies, these are actually ideas that have been seriously proposed, by various figures on the left, in response to the recent financial crisis and Great Recession, though seldom in the form of a coherent program.

While some of the above demands may still be apt now, the point is not to take specific demands written over 75 years and apply them by rote today. Rather, the idea is to craft a political program responding seriously to present problems, but pointing to the necessity of a fundamental change in the economic system—a social revolution—to resolve these problems. No single demand would, in itself, amount to the abolition of capitalism and yet a full program of “transitional demands” could not be realized within the confines of capitalist society.

It is conceivable that a social democratic reformism could take root again, and there could be a new period (similar to the Cold War heyday of social democracy) of reformed capitalism. One of the ironies of the present period, however, is that the champions of neoliberal capitalism tell us that the key features that legitimated postwar/Cold War capitalism in the rich countries of the West—rising standards of living, strong and stable trade unions, improved conditions of labor, an expansive welfare state, etc.—are now impossible. Back then, when the rulers of the rich capitalist societies felt the need to defend the superiority of their system over possible alternatives, we were constantly told that contemporary capitalism was not the Dickensian hell of the past, and that this reformed capitalism was superior to “socialism” in every way. Today, we are told that we just can’t “afford” the social protections (unions, the welfare state, etc.) we once enjoyed, or expect the economic progress (rising incomes, increasing leisure time, etc.) we were once promised.

Are such social improvements, indeed, now impossible? Not physically impossible, to be sure, for contemporary societies now dispose of far greater productive powers than those of even the recent past. Impossible within the framework of the capitalist world economy? The defenders of capitalism insist that they are.

If that is true, then any serious reformism is out of the question and, indeed, there is no alternative—to social revolution.

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  1. Jim Haygood

    ‘First is the reconstruction of the working class’s capacity for struggle.’

    Ayyy … this does not sound promising.

    The colonialist puppet regime is strong.

    I have not met my wheat production quotas for years.

    And the kulaks have no grain.

    1. Skippy

      Social democracy is the idea that the state needs to provide security and equality for its people and should actively reorder society in a way that is conducive to such developments, but that such changes should be brought about gradually, legitimated by a democratically-elected majority. It is native to Europe, where social democrats regularly feature as one of the major parties and have led (or at least participated in) governments in most states at some point in time, most notably in Scandinavia (up to being nicknamed the “Nordic model”). Social democrats typically regard government intervention as a force for good, constraining markets and engaging in redistributive efforts for the benefit of the lower classes in order to establish a more equitable society.

      Somewhat confusingly, social democracy is not the same thing as democratic socialism, nearly-identical names notwithstanding. Modern social democrats believe in maintaining the capitalist system — democratic socialists (in fact, all socialists) do not.

      Disheveled Marsupial…. the major sticking point is a level playing field wrt capitalism… unlike the libertarian or neoliberal model which seeks to tilt the playing field to the advantage of a small cohort and resulting stratification of wealth and power over others….

      PS. you might also be disturbed by the commie use of lamarckian theory to inform such activities such as you describe and their unfortunate out comes for all involved…

    2. Skippy

      No need to fear me Jim… Kierkegaard has your back…

      Disheveled Marsupial…. that your a kulak that does not know it is the punch line to a sick joke….

    3. hemeantwell

      Ayyy … this does not sound promising.
      The colonialist puppet regime is strong.
      I have not met my wheat production quotas for years.
      And the kulaks have no grain.

      I don’t get it. Are you objecting to the use of the concept of a working class or the idea that autonomous working class power, here in the form of union density, needs to increase? Or does the writer’s reference to Trotsky make an association to Stalinism hard to resist even though in not resisting you slide into the broad-brush characterizations of the Soviets that are a mainstay of anti-commie dismissals.

      1. Skippy

        Don’t disturb Jim’s reaping of electrons of profit and expectations of production to sate the desires of GDP…

        Disheveled Marsupial…. sacrilege….

  2. EoinW

    Interesting read. Yet I can’t help think that any article quoting Trotsky is simply an exercise in Left nostalgia.

    There are perfectly good reasons why western society has become what it is. Disenfranchised citizens because direct democracy cannot function in super states of tens of millions of people. Indifference because we are all materially so much better off than a century ago. Dying union movements because the reasons unions came into being no longer exist. Child labour/life threatening labour/72 hour work weeks are long gone.

    As horrible as things are said to be in Greece, it amazes me that anarchy has not taken hold. Kill a politician a day would seem to be the least extreme response for people who can’t feed their families or get life saving medicine. Yet the public just rolls over and takes it. Is that a credit to social conditioning? Lack of courage to fight back? Or are the majority still living comfortable lives and have too much to lose?

    The deal with the global economy is pretty simple. Our elites get to run everything for themselves and their friends. So long as they provide the 99% with enough material things and entertainment(sport is the opium of the people) they will continue to do so. When they fail in this, they will then play off factions of the 99% against each other or use nationalism to redirect anger away from themselves. Get people blaming anyone perceived as different and buy off enough of the 99% to defend the 1% in case some direct their anger at the correct culprits. I just don’t see any room for a social democratic revolution in all this. Do you really think you can get the 99% to agree on anything?

    We are in for a period of neo-feudalism. Until the 1% eventually screw up, end up bickering amongst themselves, and it all falls apart. Hopefully such a nihilistic outcome will lead to a push for freedom with small state democracies, open borders and free trade. Social democracy can come later when such freedoms lead to abuses and inequalities that will need regulated in order to be fair for all. If today’s society has one great flaw it is that regulation exists to serve special interest groups and creates greater inequality. Therefore the last thing I want to see is the global economy immediately replaced by social democracy – 1% parasites replaced by the new leftest parasites. Perhaps my bias is based on 18 years of paying thousands of dollars in union dues and getting next to nothing back in return. Still, isn’t that the stage we’ve reached in the global economy, too many people on the right and the left earning good money at the expense of the real workers while actually providing little to benefit society?

    1. hemeantwell

      t I can’t help think that any article quoting Trotsky is simply an exercise in Left nostalgia.

      The idea quoted was very similar to Andre Gorz’ idea of “non-reformist reforms,” reforms that were in some way necessary and plausible in the terms of the current system, and yet when pushed for would further expose the limitations of capitalism even as the reform effort got people working together. It’s only nostalgic, in the sense of attractive but obsolete, if you think the current system is much more flexible in light of what needs to be done than I’m inclined to believe.


      Eh, the end of it all is what is coming for us environmentally, and it isn’t far off. The system not only lacks a solution, it’s bound to make everything worse and to speed up the collapse. The comfortable living many in the West enjoy is going to come to an end, and because there is no alternative being offered on a mass level, we aren’t going to have the means to deal with the environmental collapse in a way that is democratic or equitable. If the right and the neoliberals have succeeded in anything, it’s getting people to give up on long-term alternatives, to stop thinking about utopian projects. Too few people now do it, and everyone just accepts things they should have long ago been challenging. The baby boomers have inherited a country and made everything worse, and they’ve passed on that abdication of responsibility to their children and grandchildren. Too few people seem interested in understanding why, and doing something about it. Most “progressives” I know just want to do their best, given the institutional barriers in place. No one wants to structurally change anything, or seems interested in widening the options available to us. By the time they see what a huge mistake this all has been, it’ll be too late. It’s depressing.

  3. makedoanmend

    If socialism was a response to seemingly undefeatable capitalism in the past, then maybe socialism today does not have to do anything.

    Just sit back and let capitalism do its work. One saves a lot of energy when one allows the opposition do the heavy lifting on itself.

    Afterwards, and there will be one (barring the big bang and nuclear winters), see what people need and want.

    Scientific history was always bullocksology, so just let normal history do its job. Can socialism learn from it?

  4. RBHoughton

    I take a simplistic view of this left / right stuff.

    The important thing is to keep the national economy bubbling along at more or less the same level of activity regardless of contrary winds – meaning counter-cyclical investing by government in the old Keynesian way.

    I doubt government has a role in helping the old, the lame and the sick – that’s a job for the rellies.

  5. Philoponos

    The third installment of this article seems to go off the rails with its socialist idealism. It’s bracing, to say the least, to hear someone seriously talking about replacing capitalism. “With what?” one wants to know. And of course no one can tell us because no one knows what form of social organization the genuine revolution will bring us until its actually happened. This was my first response. But the author’s close attention to the problem of the “transition” made me think. Of course any successful revolution has to begin small, with social experiments that grow organically, that coalesce, become movements and finally tip the balance of power. And then I think of a point that Chomsky has harped on for years–how much US foreign policy in the last 75 years has–incredibly–been aimed at stamping out even the tiniest grass-roots movements around the world that looked to put people first through new forms of organizing. It seems there was a deliberate and systematic effort to destroy anything that might serve as a model for a transition to socialism. And so now it looks to common sense like there is “no such thing” as an alternative to capitalism. But who knows where experiments in people helping people in southeast Asia and in Latin America would have led if they had not been so brutally suppressed. But given what’s at stake for the elites, is there any reason to think new experiments in potentially transitional programs won’t be just as fiercely suppressed? Why on earth was Homeland Security involved in putting down the Occupy Wall Street movement?? But if a revolution that starts as a small movement, grows organically, and evolves new ways of producing social welfare through old reliable trial and error–if this is impossible because it will be stamped out in its infancy, then the the only revolution possible is the sudden explosive kind, and this kind is doomed to failure because it has no better idea than we do now what the new social forms are that it is seeking. In that case, I’d rather not bring on the revolution. What is to be done?

    1. Left in Wisconsin

      But given what’s at stake for the elites, is there any reason to think new experiments in potentially transitional programs won’t be just as fiercely suppressed?

      Yes, it would be reasonable to assume that the agents, beneficiaries, and functionaries of neoliberal capitalism will fight tooth and nail to preserve their advantages. So, to the extent new and more serious challenges emerge, the efforts to repress will become that much more severe.

      Perhaps paradoxically, that is why is makes no sense to call Occupy or the Wisconsin uprising “failures.” These were brand new efforts to challenge existing authority, of which many more are required, to mobilize, test for weak points, learn effectiveness, etc.

      The notion that capital will roll over once we convince a majority of voters we are right is lunacy of the highest order. And of course the first country in which an uncompromising left does attain political power is likely to face the concentrated wrath of global capital in the effort to persuade leftists in all other countries of the unviability of such efforts and political programs.

      Which is why we have a long way to go, and the war, by us and against us, has barely begun.

      1. Philoponos

        Thanks for the reply. When I see how weaponized community police now are, how violent and heavy-handed with any protest, and how avid the government is to continue blanket domestic surveillance, I think: they’ve been getting ready for serious domestic unrest for a long time. When the Republican National Convention was in New York City, I witnessed a surreal match-up between Darth Vader and Minnie Mouse. What were the police thinking? A Birkenstock-shod environmental activist could not unfurl a “Think Green!” banner without SWAT teams moving in to pummel and arrest him. Were they exploiting the opportunity to practice for more serious situations they thought were coming in the future? was it a “broken windows” approach to preventing protest? How can the left “mobilize” when anything that captures headlines for more than a day has military grade weapons turned on it? Perhaps Occupy was a success in that it even got off the ground. But don’t think they will let that happen again! We’re not up against some hired union-busting thugs, now we are up against vertigo-inducing, eardrum-shattering noise cannons and other “toys” (as the police call them) out of science fiction. Unless something unsuspected changes the game (and I do hope for that), I don’t see how any movement opposed to the hegemony of capital has any chance of lasting long enough to “test for weak points” or “learn effectiveness.” N’est pas?

  6. Mattski

    This is good, but suffers–like too many of the pieces here–from its top-down perspective. The writers simply lack the ability to imagine the dimensions of revolution/s from below. Those have to begin, indeed have begun, with local movements that address people’s basic needs.The land question, for example, is utterly outside of the writer’s purview.

  7. Sound of the Suburbs

    Show me a version of Capitalism that hasn’t failed.

    We need to recognise that we have been through many versions of Capitalism and they all fail as this version is failing now.

    As John Kenneth Galbraith points out in “The Affluent Society” there is always a desperate attempt to hold onto the “conventional wisdom” that those at the top have invested so much time and effort in.

    The death throes of each system are maintained for as long as feasible until it is almost impossible for anyone to believe that the current system can work.

    A new system comes along with promises that everything will be much better, and it is, for a decade or two.

    Capitalism mark 1 – Unfettered Capitalism

    Crashed and burned in 1929 with a global recession in the1930s.
    The New Deal and Keynesian ideas promised a bright new world.

    Capitalism mark 2 – Keynesian Capitalism

    Ended with stagflation in the 1970s.
    Market led Capitalism ideas promised a bright new world.

    Capitalism mark 3 – Unfettered Capitalism Part 2 – Market led Capitalism

    Crashed and burned in 2008 with a global recession in the 2010s.

    It has followed the same path as Unfettered Capitalism (Mark 1).

    1920s/2000s – high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase

    1929/2008 – Wall Street crash

    1930s/2010s – Global recession, currency wars, rising nationalism and extremism

    Unfettered Capitalism has a catastrophic failure mode and dressing it up in the Emperor’s New Clothes of supply side economics didn’t make a blind bit of difference.

    We’ve done Neo-Keynesian stimulus.

    After eight years of pumping trillions into the top of the economic pyramid, banks, and waiting for it to trickle down.
    It didn’t work, hardly anything trickled down.

    The powers that be are now for Keynesian stimulus.

    Carry out infrastructure projects that create jobs and wages which will be spent into the economy and trickle up (pumping money into the bottom of the economic pyramid).

    The latest IMF report is talking about redistribution through taxation.

    It looks as though we are headed into Capitalism mark 4 – Keynesian Capitalism Part 2

    If we could find economists that understood the economy we might be able to design a version that works.

    1. Sound of the Suburbs

      Good economics leads to a well run economy.

      No more – 2008 “How did that happen?” – It’s ridiculous.

      No more “black swan” excuses for major events.

      Looking into 2008, and the problems since, we need to re-visit and include the following in economics (all currently missing):

      1) The work of the Classical Economists and the distinction between “earned” and “unearned” income
      Reading Michael Hudson’s “Killing the Host” is a very good start

      2) How money and debt really work. Money’s creation and destruction on bank balance sheets.

      3) The work of Irving Fisher, Hyman Minsky and Steve Keen on debt inflated asset bubbles

      4) The work of Richard Koo on dealing with balance sheet recessions

      5) The realisation that markets have two modes of operation:
      a) Price discovery
      b) Bigger fool mode, where everyone rides the bubble for capital gains

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